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Compliance Tips when Hiring Independent Contractors

Many small businesses see the benefit of hiring independent contractors. In this situation, the business gets access to high-quality skills without paying for a full-time employee. The freelancing industry is booming, which has caused the IRS to take a closer look at how small businesses are managing their independent contractors.

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Whether you have one independent contractor or a whole team of contractors, it is essential to be sure that you are following the rules. Here are a few tips to help you maintain compliance with payments and paperwork:

Accurate Information for the Contractor

Before the contractor starts working for you, make sure that you request information about the individual. You will need their full legal name, their Social Security Number or Tax ID number, and contact information. Ensuring the accuracy of this information will save you the headache of problems in the future.

This information will be useful when you are putting together the 1099 tax forms at the end of the year. You can save yourself a lot of time by gathering the information in the beginning and keeping up-to-date files.

Should the Contractor be an Employee?

Don’t push the line of employee vs. independent contractor, because it could potentially get you in the trouble with the IRS. Some businesses try to classify employees as independent contractors to save money on payroll taxes.

If you set a specific schedule for the contractor, and they are required to work certain hours, then that person should be classified as an employee. On the other hand, if you have a project that needs to be completed sometime next week, and the individual can choose their schedule, then they can be classified as an independent contractor.

For more information about the differences between an independent contractor and an employee, the best thing that you can do is talk with an accountant to learn more. You can also find information on the IRS website to find updates about current laws and regulations for payroll taxes.

Issuing 1099 Paperwork

Every January, you are required to provide a 1099 tax form to each independent contractor that earned $600 or more within the previous calendar year. These tax forms can be a burden to deal with, which is why you need to make sure that you have an experienced accountant who can handle the paperwork for you.

Here at Easier Accounting, we are here to help with managing the payments and paperwork for independent contractors and employees. Contact our experienced team to learn more about the services that we offer: (888) 620-0770